TIDMROR
RNS Number : 2012Z
Rotork PLC
05 March 2013
Rotork plc
2012 Full Year Results
2012 2011 % change OCC *(2)
% change
Revenue GBP511.7m GBP447.8m +14.3% +12.3%
Adjusted*(1) operating
profit GBP131.9m GBP115.9m +13.8% +13.0%
Profit before tax GBP124.2m GBP112.6m +10.3% +13.6%
Adjusted*(1) profit before
tax GBP131.6m GBP116.5m +13.0% +12.2%
Basic earnings per share 103.1p 93.0p +11.0% +14.3%
Adjusted*(1) basic earnings
per share 109.3p 96.2p +13.6%
Full year core dividend 43.0p 37.25p +15.4%
*(1) Adjusted figures are before the amortisation of acquired
intangible assets
*(2) OCC is organic constant currency
Key Points
-- Record order intake, revenue and profit in each division
-- Order intake up 16.8%
-- Order book at a record high of GBP181.0m, up 15.1% from December 2011
-- New product launches in each division, including IQ3 in Controls
-- Continued investment in infrastructure and international sales channels
-- Soldo acquired and 2011 acquisitions integrated into business
Peter France, Chief Executive, commenting on the results,
said:
"The strong results across the Group reflect the progress we
have made in executing our strategy, with each division achieving
record results in terms of order intake, revenue and profit.
Our expanded product portfolio and extensive international reach
position us for further growth. We will continue to invest in
infrastructure, product development and sales channels both
organically and by acquisition to strengthen our presence in the
wider flow control market.
The markets that we serve remain active and whilst we recognise
that we are likely to see weakness within some regions due to
economic conditions, the Board remains confident of achieving
further progress in the coming year."
For further information, please contact:
Rotork plc Tel: 01225 733200
Peter France, Chief Executive
Jonathan Davis, Finance Director
FTI Consulting Tel: 020 7269 7291
Nick Hasell / Susanne Yule
Chairman's statement
I am pleased to report another year of record order intake,
revenue and profit. Our strategy remains to grow both organically
and through acquisitions and again this year we have extended our
geographic reach. The six acquisitions we completed in 2011 were
successfully integrated and have all made positive contributions
during the year. Rotork Instruments, the division we created in
2011 to address the wider flow control market, performed well and
will benefit from the addition of Soldo which we acquired in
November 2012. Following the year end, in January 2013, we acquired
the Schischek group of companies which will form part of the
Controls division and provides us a presence in a new market,
heating, ventilation and air conditioning (HVAC).
Rotork has a reputation for innovation and during the year we
maintained our focus on bringing new products to market which
incorporate additional features and provide new benefits to our
customers. 2012 saw the launch of IQ3, the latest generation of our
flagship electric actuator range, as well as new products in each
of the other divisions.
Financial Highlights
Revenue grew 14% to GBP512m despite a 3% currency headwind. The
currency impact was more than offset by the benefit of a full year
contribution from the six businesses acquired in 2011, meaning
growth on an organic constant currency basis was 12%. Adjusted
operating profit* increased by 14% to GBP132m, resulting in a
broadly similar operating margin of 25.8% compared with 25.9% the
prior year. The rapid growth of Fluid Systems had a dilutive effect
on Group margins even though this division generated adjusted
operating margins in excess of its 15% target at 15.3% for the full
year. Earnings per share increased 11% to 103.1 pence, or based on
adjusted profit*, 14% to 109.3 pence. Net cash balances grew GBP11m
in the year to end at GBP60m.
Board Composition
In May 2012 we welcomed Sally James as a non-executive director,
broadening the range of skills and experience within the Board.
Sally currently holds a number of other non-executive positions and
previously held senior legal roles in investment banks in London
and Chicago. Following Sally's appointment the Company is now
compliant with the Corporate Governance Code in that half the
Board, excluding myself as Chairman, are independent
non-executives. We have also met our stated aim that 25% of our
independent non-executives will be women by the end of 2012.
Board Performance
Once again this year we used external consultants to conduct an
independent appraisal of Board effectiveness. The results of the
review were positive and Directors were unanimously of the view
that the Board operates effectively as a unit. It is clear that the
breadth of experience and skills represented on the Board is a key
factor in this. During the review it was noted that a number of
improvements had been made following last year's review including
the appointment of a new non-executive director and a strengthening
of the approach to risk management and to acquisitions within the
broader flow control strategy. The review recognised that many of
the challenges facing the Board relate to managing the continued
growth of the Group whilst preserving the strengths of the
business. Overall, I remain satisfied that the composition of the
Board enables it to fulfil its expected role.
Corporate Governance
As a Board, we are responsible to the Company's shareholders for
increasing shareholder value over the long term through effective
management and good governance. The Board considers all the aspects
of the business necessary to provide good governance including
strategy, acquisitions, current performance, risk management and
the internal control framework. Discussions include the Rotork
Management Board on occasions and at least once a year the Board
meeting takes place at one of the subsidiary sites. I am pleased to
be able to confirm that Rotork now complies with all aspects of the
UK Corporate Governance Code.
Dividend
The Board recommends a final dividend of 26.6p per share which,
taken together with the 2012 interim dividend, gives a payment of
43.0p per share (2011 core dividend: 37.25p), representing a 15%
increase in core dividends. This dividend will be payable on 21 May
2013 to shareholders on the register on 12 April 2013.
Outlook
The strong results across the Group reflect the progress we have
made in executing our strategy, with each division achieving record
results in terms of order intake, revenue and profit.
Our expanded product portfolio and extensive international reach
position us for further growth. We will continue to invest in
infrastructure, product development and sales channels both
organically and by acquisition to strengthen our presence in the
wider flow control market.
The markets that we serve remain active and whilst we recognise
that we are likely to see weakness within some regions due to
economic conditions, the Board remains confident of achieving
further progress in the coming year.
Roger Lockwood
Chairman
4 March 2013
*References to adjusted profit throughout this document are
defined as the IFRS profit, whether profit before tax or operating
profit, with the amortisation of acquired intangibles added
back.
Business Review
2012 was a year of good progress. We delivered strong organic
growth and successfully integrated the acquisitions made during
2011. The investments in our international sales channels and the
expansion of our product portfolio helped each of the divisions
achieve record results.
We continue to expand our international presence and currently
have 22 manufacturing sites, 61 offices and a further 63 regional
locations in 33 countries meaning we now have sales channels in 94
countries in total. Our customers continue to demand operational
and product excellence. We provide this through focused attention
on customer satisfaction and investment in our people and
facilities.
I am pleased to report that our strategy for growth has
delivered record results. Order intake for the year was GBP539.3m,
up 16.8% on the previous year. On an organic constant currency
basis order intake was 14.4% ahead of 2011.
Revenue was again weighted to the fourth quarter and we enjoyed
a particularly strong end to the year. Revenue for the full year
was GBP511.7m, 14.3% up on the prior year. Adjusted operating
profit margin was 25.8%, slightly lower than the 25.9% achieved
last year but, excluding the impact of acquisitions and currency,
the adjusted margin was 26.0%.
The Company benefits from a diverse product portfolio and an
extensive geographical reach. The industries that we serve often
have high barriers to entry: for example, actuators usually require
certification and approvals before they can be used. They are also
mission critical to the operations of our customers and, as such,
investment in the quality and reliability of equipment and service
is an area of acute focus for them.
In 2012 we have seen an increase in orders in the oil & gas
market, which has been driven in part by activity related to shale
gas discoveries and the subsequent investment in liquefied natural
gas (LNG) projects. The power market has been impacted by a
slowdown in China and a lack of spend in India, although the long
term need for power generation in these countries remains. The
water market showed signs of growth, such that, even in countries
such as China, which saw a decline in the power market in 2012,
Rotork was still able to record year-on-year growth.
Through the establishment of Rotork Instruments, we have
increasingly been addressing industry sectors outside of oil &
gas, power and water. The acquisitions of Fairchild in 2011 and
Soldo, a switch box manufacturer based in Italy, in November 2012,
provide the division with a solid platform to build on and we look
forward to growing the division over time.
We have continued to invest in the infrastructure of the
business. During 2012 we opened our new Chennai factory in India
and in Russia we expanded our facility in Moscow and opened a new
office in St Petersburg. We also opened new facilities in Sao
Paulo, Brazil, Jebel Ali, UAE and Edmonton, Canada amongst others.
We have acquired another site in Bath to accommodate the growth of
the Controls division and we will be moving to a new facility in
Leeds which will house Rotork Gears and Rotork UK. Both sites will
be fully operational by the end of 2013.
Rotork Controls
GBPm 2012 2011 Change OCC change
-------------------- ------ ------ ------- -----------
Revenue 293.3 278.0 +5.5% +6.8%
-------------------- ------ ------ ------- -----------
Adjusted operating
profit 94.8 92.1 +2.9% +5.0%
-------------------- ------ ------ ------- -----------
Adjusted operating
margin 32.3% 33.1% -80bps -50bps
-------------------- ------ ------ ------- -----------
The launch of the third generation of our flagship IQ actuator
was the key event of 2012 for the Controls division. The advances
in diagnostics and asset management and improved local access to
that information in this latest generation of products keeps the IQ
range at the forefront of the industry. We also launched the
Compact Modulating Actuator (CMA), a new process control actuator
range, and a larger size CVA, both of which expand our already
market leading product portfolio.
Revenue grew by 5.5% in the year to GBP293.3m and, with order
intake growth of 8.7%, the year end order book grew by 12.8%.
Removing the contribution from acquisitions and restating 2012 at
2011 exchange rates, revenue growth was 6.8% and order intake
growth was 9.3%. A 7% weaker euro is the main factor behind the
currency adjustment with the US dollar rate against sterling being
similar for both years. Adjusted operating profit of GBP94.8m was
2.9% higher than 2011 and the resulting margin of 32.3% compares
with the 33.1% in the prior year. On an organic constant currency
basis, the increase in adjusted operating profit would have been
5.0% and the margin 32.6%. Whilst material costs reduced slightly
as a proportion of revenue due to our focus on sourcing, labour and
overhead cost increases were ahead of the rate of revenue increase.
Some of the increased costs were directly related to product
launches but others were due to investment in facilities and people
to support growth.
2012 saw contrasting activity levels in our end-markets. Whilst
oil & gas generally has been active and we have seen growth,
the power market was slower. This slowdown in power has been most
noticeable in India and China, where it is our biggest sector, and
has been influenced by raw material supply and governmental
factors. We anticipate this to be a relatively short-term effect as
the longer term demand in both these countries continues to
outstrip current supply levels. Despite the softer power market,
both India and China delivered growth as our sales forces focused
on other end market opportunities. In oil & gas, growth came
through a range of countries and in different applications: for
example, the offshore sector in Norway; transmission and storage in
Russia; and unconventional gas fields in Australia. The Australian
projects represent a milestone for our CVA range. The products' low
power requirements, fail-to-position capability and accuracy have
ensured that they are specified on these remote installations. The
increase in order book through the year was also partially driven
by these Australian projects as the deliveries are phased over many
months. In the Americas, our growth has been broad-based and we
benefited from a number of projects in Latin America, an active
valvemaker base in the US Gulf Coast region which is predominantly
serving export markets, and some activity in US water and oil &
gas projects.
Proximity to our customers is important to Rotork's business
model and we continue to look for locations where we can increase
our presence. This proximity ensures that we are able to work more
closely with customers as they develop their investment plans and
provide them with better after-sales service and support. During
the year we opened five new sales offices and expanded our offices
and workshop facilities in seven others. We also opened our new
factory in Chennai, India, having completely rebuilt the facility
to provide a modern factory capable of supporting our growth in
this important market for many years to come. Many of our
production facilities serve more than one division, with sales
forces often cross-selling products from all divisions. We plan to
open a number of new offices in 2013, including a presence in north
east Australia where the market is very active.
The launch of any new product range requires significant work
not only in designing it but also then sourcing the new components.
Typically there are costs associated with introducing new products
and at the point of product launch the components are also at their
most expensive. We continually review our supply base, and as
volumes grow and the product matures, we have historically been
able to deliver savings through improvements in sourcing.
The IQ3 has been positively received by our customers. Initially
we are manufacturing the product in Bath and we will systematically
roll out production to our other electric actuator manufacturing
sites during 2013.
Rotork Fluid Systems
GBPm 2012 2011 Change OCC change
-------------------- ------ ------ -------- -----------
Revenue 160.9 132.6 +21.4% +22.6%
-------------------- ------ ------ -------- -----------
Adjusted operating
profit 24.6 17.1 +44.2% +51.3%
-------------------- ------ ------ -------- -----------
Adjusted operating
margin 15.3% 12.9% +240bps +300bps
-------------------- ------ ------ -------- -----------
Rotork Fluid Systems (RFS) was our fastest growing division in
2012. The division exceeded our medium-term target of achieving an
adjusted operating margin of 15% and our objective is now to
sustain that performance in future years. RFS manufactures a wide
range of pneumatic and hydraulic emergency shutdown actuators
mainly for the oil & gas market. Oil & gas covers a wide
variety of applications and RFS benefited from strong demand from
LNG, gas and liquids pipelines, gas storage and offshore projects
during the year. The integration and development of recent
acquisitions also played a part in this growth - notably in Mexico,
where we began to deliver actuators on the large pipeline project
won at the end of 2011, and where we also won some significant
service contracts during the year.
Revenue grew 21.4% to a record GBP160.9m, with the second half
contribution of GBP89.5m being 12.5% higher than the second half of
2011, which had been a record. Revenue was less second half
weighted this year, representing 56% of the annual total compared
with 60% in 2011. Removing the incremental benefit of acquisitions
and restating revenue at 2011 exchange rates, revenue growth would
have been 22.6% higher. With two key factories based in the
eurozone and euro weakness being the most significant driver behind
the currency headwind in 2012, RFS is the division most affected by
the currency restatement this year in percentage terms. Order
intake increased by 22.4%, 22.9% on an organic constant currency
basis, and the order book rose 16.5% to GBP66.5m. Adjusted
operating profit was a record at GBP24.6m, 44.2% higher than the
prior year, and would have been GBP25.8m at 2011 exchange rates and
without the contribution from acquisitions. Adjusted operating
margins were 15.3% and would have been 15.9% on an organic constant
currency basis.
Our target margin was achieved through growth in revenue, which
has been driven by our recent investment in infrastructure. This
investment has enabled us to ensure that as volumes increased, we
maintained our quality and met our customers' delivery
expectations. Our factories in Leeds, UK and Rochester, USA,
recorded a strong performance, supported by growth of our
electro-hydraulic products. Our factories in Melle, Germany - which
mainly supplies the German and Russian markets - Lucca, Italy and
Flowquip, based in Tulsa, USA, all achieved record results.
Flowquip serves the liquids pipeline market, as well as operating
as a Centre of Excellence (CoE) for that region in the USA. Our
CoEs buy actuators from our factories and add control systems in
their local workshops, and these also performed well. Our
subsidiaries in Australia and Russia made the greatest progress in
the year, with the Middle East, Norway and Mexico also growing
strongly, albeit from a lower base. During the year we opened CoEs
in Brazil and the Middle East and expanded our site in Edmonton,
Canada. These investments will support our growth in the coming
years. In 2013 we plan to extend four facilities and open three new
ones, including a new office in north east Australia, from where we
will be able to serve the active local market and our growing
installed base of electro-hydraulic actuators.
We introduced a number of new products during 2012, the most
significant of which was the launch of an updated Gas-over-Oil
product range that offers a more compact design than its
predecessor. The R&D team was restructured during the year to
ensure that dedicated resource is allocated to new product
development and kept separate from day-to-day applications
engineering. Both parts of the team are supported by RIDEC (Rotork
Innovation Design and Engineering Centre) in Chennai, India, which
works closely with the R&D teams in our factories around the
world.
Managing the cost of components, both through engineering change
and sourcing initiatives, is a continual drive and we were
successful in generating savings through this process during the
year. Using our factories in lower cost areas as a base for
sourcing local expertise has proved beneficial and we will extend
this initiative to additional product ranges in 2013.
Rotork Gears
GBPm 2012 2011 Change OCC change
-------------------- ------ ------ ------- -----------
Revenue 52.9 46.6 +13.5% +13.6%
-------------------- ------ ------ ------- -----------
Adjusted operating
profit 12.1 10.3 +17.0% +21.4%
-------------------- ------ ------ ------- -----------
Adjusted operating
margin 22.9% 22.2% +70bps +150bps
-------------------- ------ ------ ------- -----------
Rotork Gears manufactures and sells manual and motorised
gearboxes and accessories. The gearboxes can be used in conjunction
with actuators and we sell to both the Controls and Fluid Systems
divisions, as well as selling directly to third parties. We have
been working to increase the level of our third-party sales and in
2012 we have made further progress in this regard, with around
three quarters of revenue now generated from sales to third-party
valve manufacturers. Whilst the sales to Rotork offices are often
driven by project activity, the sales to valvemakers are very
different in nature. The gearbox is effectively a component of the
valve and, with the majority of valves still being manually
operated, most require a gearbox to provide the necessary
mechanical advantage to operate the valve. All valvemakers
therefore need a supply of gearboxes and although some make their
own, our sales proposition is very attractive. We provide high
quality, reliable gearboxes and, by virtue of our scale and buying
power through our global supply chain, we can provide the valve
industry with an out-sourced solution.
Revenue grew 13.5% in the year to GBP52.9m whilst order intake
increased 18.9%, resulting in a 25.2% increase in order book to
GBP9.9m. Each of these is a record for Gears. The Prokits
acquisition in December 2011 made a full contribution in the year,
nearly offsetting the currency headwind for the division, with
revenue growth on an organic constant currency basis of 13.6%.
Adjusted operating profit for the year was GBP12.1m, 17.0% higher
than the prior year, delivering an operating margin of 22.9%
compared with 22.2% last year. Restating adjusted operating profit
at last year's exchange rates and removing the effect of the
acquisition increases the operating profit to GBP12.5m and the
margin to 23.7%. The margin increase derives mainly from higher
volumes, successful sourcing initiatives and a beneficial product
mix.
We saw fastest growth in the Chinese and US markets, the two
territories in which we have focused our investment in recent
years. In China we continued to grow our business with existing
customers and win new accounts so that our Shanghai factory is now
the largest within the division. The increase in Chinese output has
helped to improve the efficiency of our facility and has also
increased our buying power with our supply base in China. In
Houston, our customisation centre started to gain traction and
towards the end of the year we leased additional space in the
facility. The workshop area, shared with Controls and Fluid
Systems, has been doubled to provide a platform for further growth.
We also increased our sales of subsea gearboxes, with our plant in
Italy the driving force behind this particular market.
Amongst our other locations, development of the local supply
chain in India has proved slower than hoped, which meant that,
whilst revenue grew strongly, albeit from a low base, it was not at
the margins anticipated. Work on indigenisation of the supply base
is an important step for the Indian factory and will also provide a
source of components to export to other Gears factories. In Russia
and Japan we have begun to consolidate our relationships with local
valvemakers and we are now adopting a similar approach in Spain,
where we continue to make progress. In the UK, our main Gears
factory will relocate to a larger facility in Leeds during 2013
which will be far better suited to its requirements.
The pace of product development has accelerated and is one of
the reasons behind our creation of a dedicated new product
introduction team. We launched two completely new manual gearbox
ranges and expect further new ranges to be introduced during 2013.
The Prokits acquisition has provided fresh impetus to our UK valve
adaption business and delivered good growth in the year.
Rotork Instruments
GBPm 2012 2011
-------------------- ------ ------
Revenue 16.4 1.4
-------------------- ------ ------
Adjusted operating
profit 5.1 0.4
-------------------- ------ ------
Adjusted operating
margin 31.1% 27.4%
-------------------- ------ ------
Rotork Instruments was formed in November 2011 with the purchase
of Fairchild Industrial Products and will ultimately contain a
number of businesses targeted at the wider flow control market. The
division will be built, at least initially, via acquisitions as we
look for businesses which have products that measure and control
flow and pressure. These devices may work in conjunction with
actuators, be sold into the same end markets as actuators, or
utilise some of the same technology as actuators but they will also
take us into new end markets. As with our approach in actuators, we
intend to focus on the high quality, high specification part of the
instruments market where certification is often required and
margins are generally higher.
Fairchild is headquartered in Winston-Salem, USA, has sales
offices in China, India, Brazil and Mexico and sells precision
pneumatic and electro-pneumatic control products. A network of
distributors is supported from each of these offices, although
there are a number of different routes to market and a broad range
of end markets. In 2012 the Gulf Coast area of the USA performed
particularly well, supported by an active oil & gas sector,
which is the division's largest end market. Despite an unfavourable
economic backdrop, India and Europe were also strong.
In November 2012, we acquired Soldo, an Italian based switchbox
manufacturer, adding a second high quality business to the
Instruments division. Soldo's switchboxes are used to indicate
valve positions, sometimes in conjunction with a pneumatic or
hydraulic actuator, often in hazardous environments. They are
highly engineered products which require certification for many of
the applications and end markets in which they are used.
This was Fairchild's first full year as part of Rotork and, as
such, we focused heavily on integration at all levels. During the
year we combined the Rotork and Fairchild offices in Chengdu,
China, and although now sharing a common location, they will
continue to be run as separate businesses. We also plan to relocate
Soldo's USA operation into the Winston-Salem facilities during
2013.
Revenue in the year was GBP16.4m, including a small contribution
from Soldo, compared with GBP1.4m in the prior year, which
represented only six weeks of Fairchild's results. The adjusted
operating margins were 31.1% for the year in total, with both
businesses generating similar returns. These businesses operate on
much shorter lead times than the other Rotork divisions and an
order book representing less than one month's sales is typical.
Rotork Site Services
Rotork Site Services operates mainly within the Rotork Controls
and Rotork Fluid Systems divisions and focuses mostly on
preventative maintenance contracts, on-site and workshop service
and retrofit solutions. This business continues to grow and
provides us with the ability to work closely with our existing
customer base and develop relationships which enhance the sales
opportunities for the full range of Rotork products.
We measure RSS's performance against a number of key metrics and
the number of service engineers is one of these. In the year we
have increased the number of service engineers by 8% and we now
have over 320 service personnel globally. Our products are often
used in environmentally challenging locations and the need for
certainty of operation means that the customer is looking for local
service and, increasingly, preventative maintenance contracts.
Rotork now has close to 100,000 actuators under some form of
maintenance contract, an increase of 6% over last year.
Research & Development
All divisions launched new products during 2012. We introduced
the third generation of our flagship IQ range to build on Rotork's
position as the premium brand in our market by providing our
customers with the very latest technology. In Controls we also
launched the complementary Compact Modulating Actuator (CMA), which
has strengthened the Rotork Process Control portfolio of electric
actuators.
In Rotork Fluid Systems, the investments we have made in recent
years have resulted in the introduction of a number of new
products, including the latest Gas-over-Oil actuator range.
Our spend on R&D increased once again this year, up 27% to
GBP7.4m. We continue to increase our engineering resources and to
work on other initiatives which will support product launches in
2013 and beyond.
Acquisitions
Our screening criteria for an acquisition are that it must bring
to Rotork a product we do not have, improve our access to a
geographic or end-user market or ideally a combination of these.
Soldo, now part of our Instruments division, was purchased in the
year for total consideration of GBP23.1m, of which GBP9.7m has been
attributed to intangible assets and GBP14.0m is goodwill.
Subsequent to the year end, we announced the acquisition of the
Schischek group of companies for GBP34.3m. Headquartered in
Germany, Schischek manufactures explosion-proof actuators for the
heating, ventilation and air-conditioning market, where Rotork has
historically had few direct sales.
As a result of the higher number and value of acquisitions this
year and last, the amortisation charge related to acquired
intangible assets rose from GBP3.9m last year to GBP7.4m this year.
With the acquisitions taking place throughout last year and Soldo
acquired in November 2012, in order to adjust the income statement
to show a like-for-like period for each acquisition, 2012 revenue
has to be reduced by GBP22.1m and operating profit by GBP5.1m.
Acquisitions have been only slightly dilutive in the year with an
aggregate adjusted operating margin of 23.1%.
Currency
Currency was a stronger headwind in 2012 and reduced revenue by
GBP13.4m, with the weaker euro being the most significant element.
Whilst the average euro rate was 7% weaker than the comparative
period, the US dollar average rate was almost identical to 2011.
The other currencies which affect the Group were also marginally
weaker. The currency impact is a mix of translation and transaction
and the GBP4.2m reduction in operating profit is net of any
benefits gained from the sourcing of components from within the
eurozone. Whilst we manufacture and sell from offices based in 33
countries, with 19 different currencies, and source components from
a wide geographic footprint, the Group is still a net seller of
euros and US dollars. It is the net sale of these currencies which
we principally address through our hedging policy, covering up to
75% of trading transactions in the next 12 months and up to 50%
between 12 and 24 months. In order to estimate the impact of
currency, at the current exchange rates we consider the effect of a
1 cent movement versus sterling. For both euro and US dollar a 1
cent movement now results in a GBP350,000 adjustment to profit.
Return on capital employed (ROCE)
Whilst ROCE remains high due to our asset light business model
and high profit margins, it has reduced from 74.1% in 2011 to 62.0%
in 2012. The calculation is based on the average balance sheet
position, taking the opening and closing balance sheet, so the
impact of the acquisition of Fairchild and the five other companies
in 2011 is only now fully reflected in the capital employed. The
intangible assets capitalised in accounting for these acquisitions,
together with the Soldo acquisition in 2012, has led to an increase
in average capital employed from GBP156.5m in 2011 to GBP212.8m
this year end.
Cash generation
At the end of the year, net cash was GBP59.9m, an increase of
GBP11.3m during the year. The largest cash outflow this year was
the GBP37.6m of tax. Whilst the effective tax rate in the income
statement may be lower, the higher profits in 2011 and then again
in 2012, combined with a change in the phasing of payments, led to
the higher rate of increase in tax paid. No additional dividends
were paid this year so total dividends paid in the year are lower
than 2011 at GBP33.9m compared with GBP49.5m, which included
GBP19.9m of additional dividends. Acquisition spend of GBP20.9m was
predominantly the Soldo purchase in November but also includes
deferred consideration on some of the 2011 acquisitions.
Our cash generation KPI improved from 89.6% last year to 95.4%.
Management of working capital has the greatest influence on this
KPI and in 2012 it improved. Working capital as a function of
revenue was 25.5% compared with 27.0% in 2011. Inventory and trade
receivables both increased at a slower rate than revenue and debtor
days reduced by one to 56 days' sales outstanding.
Peter France
Chief Executive
4 March 2013
Consolidated Income Statement
for the year ended 31 December 2012
Notes 2012 2011
GBP000 GBP000
Revenue 2 511,747 447,833
Cost of sales (272,199) (236,359)
______ ______
Gross profit 239,548 211,474
Other income 908 194
Distribution costs (4,214) (4,020)
Administrative expenses (111,743) (95,589)
Other expenses (32) (59)
Adjusted operating profit 131,866 115,921
Amortisation of acquired intangible assets (7,399) (3,921)
Operating profit 124,467 112,000
Financial income 4 6,656 7,590
Financial expenses 4 (6,929) (7,040)
______ ______
Profit before tax 124,194 112,550
Income tax expense 5 (34,879) (32,149)
______ ______
Profit for the year 89,315 80,401
===== =====
Pence Pence
Basic earnings per share 12 103.1 93.0
Adjusted basic earnings per share 12 109.3 96.2
Diluted earnings per share 12 102.6 92.6
Consolidated Statement of Comprehensive Income
for the year ended 31 December 2012
2012 2011
GBP000 GBP000
Profit for the year 89,315 80,401
Other comprehensive income
Foreign exchange translation differences (3,967) (2,484)
Actuarial loss in pension scheme (8,598) (8,499)
Effective portion of changes in fair value
of cash flow hedges 399 207
______ ______
Income and expenses recognised directly
in equity (12,166) (10,776)
Total comprehensive income for the year 77,149 69,625
===== =====
Consolidated Balance Sheet
at 31 December 2012
Notes 2012 2011
GBP000 GBP000
Non-current assets
Property, plant and equipment 38,445 31,954
Goodwill 6 80,729 68,459
Intangible assets 7 40,743 38,325
Deferred tax assets 12,984 13,244
Derivative financial instruments - 315
Other receivables 9 1,674 1,556
______ ______
Total non-current assets 174,575 153,853
Current assets
Inventories 8 71,100 62,928
Trade receivables 9 95,822 96,734
Current tax 9 1,946 988
Derivative financial instruments 2,254 677
Other receivables 9 9,662 8,461
Cash and cash equivalents 10 59,868 48,557
______ ______
Total current assets 240,652 218,345
______ ______
Total assets 415,227 372,198
===== =====
Equity
Issued equity capital 11 4,340 4,338
Share premium 8,258 7,835
Reserves 10,356 13,924
Retained earnings 246,369 198,072
_____ _____
Total equity 269,323 224,169
===== =====
Non-current liabilities
Interest bearing loans and borrowings 116 229
Employee benefits 32,060 28,142
Deferred tax liabilities 13,488 12,782
Provisions 13 2,701 2,218
______ ______
Total non-current liabilities 48,365 43,371
Current liabilities
Bank overdraft 10 - 38
Interest bearing loans and borrowings 56 85
Trade payables 14 36,355 38,742
Employee benefits 10,742 9,624
Current tax 14 11,143 13,225
Derivative financial instruments 96 614
Other payables 14 35,212 38,360
Provisions 13 3,935 3,970
______ ______
Total current liabilities 97,539 104,658
Total liabilities 145,904 148,029
______ ______
Total equity and liabilities 415,227 372,198
===== =====
Consolidated Statement of Changes in Equity
Issued Share Translation Capital Hedging Retained Total
equity premium reserve redemption reserve earnings
capital reserve
Balance at 31 December
2010 4,334 7,389 14,100 1,644 457 175,927 203,851
Profit for the year - - - - - 80,401 80,401
Other comprehensive
income
--------- --------- ------------ ------------ --------- ---------- ---------
Foreign exchange translation
differences - - (2,484) - - - (2,484)
Effective portion of
changes in fair value
of cash flow hedges - - - - 207 - 207
Actuarial loss on defined
benefit pension plans
net of tax - - - - - (8,499) (8,499)
--------- --------- ------------ ------------ --------- ---------- ---------
Total other comprehensive
income - - (2,484) - 207 (8,499) (10,776)
--------- --------- ------------ ------------ --------- ---------- ---------
Total comprehensive
income - - (2,484) - 207 71,902 69,625
Transactions with owners,
recorded directly in
equity
Equity settled share-based
payment transactions
net of tax - - - - - (196) (196)
Share options exercised
by employees 4 446 - - - - 450
Own ordinary shares
acquired - - - - - (3,185) (3,185)
Own ordinary shares
awarded under share
schemes - - - - - 3,158 3,158
Dividends - - - - - (49,534) (49,534)
--------- --------- ------------ ------------ --------- ---------- ---------
Balance at 31 December
2011 4,338 7,835 11,616 1,644 664 198,072 224,169
Profit for the year - - - - - 89,315 89,315
Other comprehensive
income
--------- --------- ------------ ------------ --------- ---------- ---------
Foreign exchange translation
differences - - (3,967) - - - (3,967)
Effective portion of
changes in fair value
of cash flow hedges - - - - 399 - 399
Actuarial loss on defined
benefit pension plans
net of tax - - - - - (8,598) (8,598)
--------- --------- ------------ ------------ --------- ---------- ---------
Total other comprehensive
income - - (3,967) - 399 (8,598) (12,166)
--------- --------- ------------ ------------ --------- ---------- ---------
Total comprehensive
income - - (3,967) - 399 80,717 77,149
Transactions with owners,
recorded directly in
equity
Equity settled share-based
payment transactions
net of tax - - - - - 1,219 1,219
Share options exercised
by employees 2 423 - - - - 425
Own ordinary shares
acquired - - - - - (2,850) (2,850)
Own ordinary shares
awarded under share
schemes - - - - - 3,135 3,135
Dividends - - - - - (33,924) (33,924)
--------- --------- ------------ ------------ --------- ---------- ---------
Balance at 31 December
2012 4,340 8,258 7,649 1,644 1,063 246,369 269,323
--------- --------- ------------ ------------ --------- ---------- ---------
Detailed explanations for equity capital, translation reserve,
capital redemption reserve and hedging reserve can be seen in note
11.
Consolidated Statement of Cash Flows
for the year ended 31 December 2012
Notes 2012 2012 2011 2011
GBP000 GBP000 GBP000 GBP000
Cash flows from operating activities
Profit for the year 89,315 80,401
Adjustments for:
Amortisation of intangibles 7,399 3,921
Amortisation of development
costs 924 732
Depreciation 5,452 4,479
Equity settled share-based payment
expense 2,030 1,251
Profit on sale of property,
plant and equipment (859) (129)
Financial income (6,656) (7,590)
Financial expenses 6,929 7,040
Income tax expense 34,879 32,149
______ ______
139,413 122,254
Increase in inventories (9,474) (11,402)
Increase in trade and other
receivables (2,220) (26,791)
(Decrease) / Increase in trade
and other payables (3,341) 18,537
Difference between pension charge
and cash contribution (7,211) (2,929)
Decrease in provisions (264) (436)
Increase in other employee benefits 1,711 1,692
______ ______
118,614 100,925
Income taxes paid (37,641) (27,754)
______ ______
Cash flows from operating activities 80,973 73,171
Investing activities
Purchase of property, plant
and equipment (12,564) (10,143)
Development costs capitalised (2,075) (1,328)
Sale of property, plant and
equipment 1,007 274
Acquisition of businesses, net
of cash acquired 3 (20,674) (59,876)
Contingent consideration paid (200) (41)
Interest received 623 694
______ ______
Cash flows from investing activities (33,883) (70,420)
Financing activities
Issue of ordinary share capital 425 450
Purchase of ordinary share capital (2,850) (3,185)
Interest paid (163) (117)
Repayment of amounts borrowed (64) (421)
Repayment of finance lease liabilities (68) (54)
Dividends paid on ordinary shares (33,924) (49,534)
______ ______
Cash flows from financing activities (36,644) (52,861)
Increase / (decrease) in cash ______ ______
and cash equivalents 10,446 (50,110)
Cash and cash equivalents at
1 January 48,519 97,881
Effect of exchange rate fluctuations 903 748
on cash held _____ _____
Cash and cash equivalents at 10 59,868 48,519
31 December ===== =====
Notes to the Financial Statements
for the year ended 31 December 2012
Except where indicated, values in these notes are in GBP000.
Rotork plc is a company domiciled in England. The consolidated
financial statements of the Company for the year ended 31 December
2012 comprise the Company and its subsidiaries (together referred
to as the 'Group').
1. Accounting policies
Basis of preparation
The consolidated financial statements of Rotork plc have been
prepared and approved by the directors in accordance with
International Financial Reporting Standards as adopted by the
European Union (IFRSs as adopted by the EU), IFRIC Interpretations
and the Companies Act 2006 applicable to companies reporting under
IFRS. The consolidated financial statements have been prepared
under the historical cost convention subject to the items referred
to in the derivative financial instruments accounting policy
below.
New accounting standards and interpretations
The amendments to IFRS 7 Financial Instruments: disclosures are
applicable for the financial year ending 31 December 2012.
Application of this standard has not had any material impact on the
disclosures, net assets or results of the Group.
Recent accounting developments
The amendments to IAS19 Employee benefits will be applied from 1
January 2013. The principal change relates to the requirement to
use the schemes' discount rate to calculate the return on assets
rather than using a rate of return appropriate to the various asset
classes.
The application of the standard in 2012 would have reduced the
pre-tax profit by GBP702,000 increasing the net pension interest
cost to GBP1,092,000. The impact on basic earnings per share would
be a reduction of 0.6p to 102.5p. In 2013, the net pension interest
cost is estimated is to be GBP1,150,000 under the amended standard.
The impact on shareholders' equity will be negligible.
The following standards and interpretations were issued but are
not yet effective and have not been adopted as application was not
mandatory for the year (and in some cases not yet endorsed for use
in the EU):
-- IFRS 9 Financial Instruments
-- IFRS 10 Consolidated Financial Statements
-- IFRS 11 Joint Arrangements
-- IFRS 12 Disclosure of Interests in Other Entities
-- IFRS 13 Fair Value Measurement
-- IAS 1 Financial Statement presentation (amendments)
The directors anticipate that the adoption of these standards
and amendments will not have a material impact on the net assets or
results of the Group.
Going concern
After making enquiries, the directors have a reasonable
expectation that the Group has adequate resources to continue in
operational existence for the foreseeable future. For this reason,
they continue to adopt the going concern basis in preparing the
financial statements. In forming this view, the directors have
considered trading and cash flow forecasts, financial commitments,
the significant order book with customers spread across different
geographic areas and industries and the significant net cash
position.
Consolidation
The consolidated financial statements incorporate the financial
statements of the Company and its subsidiaries for the year to 31
December 2012. The financial statements of subsidiaries are
included in the consolidated financial statements from the date
that control commences until the date control ceases. Intra-group
balances and any unrealised gains or losses or income and expenses
arising from intra-group transactions are eliminated in preparing
the consolidated financial statements.
Status of this preliminary announcement
The financial information contained in this preliminary
announcement does not constitute the Company's statutory accounts
for the years ended 31 December 2012 or 2011. Statutory accounts
for 2011, which were prepared under International Financial
Reporting Standards as adopted by the EU, have been delivered to
the registrar of companies, and those for 2012 will be delivered in
due course. The auditors have reported on those accounts; their
reports were (i) unqualified, (ii) did not include a reference to
any matters to which the auditors drew attention by way of emphasis
without qualifying their report and (iii) did not contain a
statement under section 498 (2) or (3) of the Companies Act 2006.
Full financial statements for the year ended 31 December 2012, will
shortly be posted to shareholders, and after adoption at the Annual
General Meeting on 26 April 2012 will be delivered to the
registrar.
2. Operating segments
The Group has chosen to organise the management and financial
structure by the grouping of related products. The four
identifiable operating segments where the financial and operating
performance is reviewed monthly by the chief operating decision
maker are as follows:
Controls - the design, manufacture and sale of electric valve
actuators
Fluid Systems - the design, manufacture and sale of pneumatic
and hydraulic valve actuators
Gears - the design, manufacture and sale of gearboxes, adaption
and ancillaries for the valve industry
Instruments - the manufacture of high precision pneumatic
controls and power transmission products for a wide range of
industries
Unallocated expenses comprise corporate expenses.
Geographic analysis
Rotork has a worldwide presence in all four operating segments
through its subsidiary selling offices and through an agency
network. A full list of locations can be found at
www.rotork.com.
Analysis by Operating segment:
Fluid
Controls Systems Gears Instruments Elimination Unallocated Group
2012 2012 2012 2012 2012 2012 2012
Revenue from external
customers 293,342 160,946 41,039 16,420 - - 511,747
Inter segment revenue - - 11,844 - (11,844) - -
Total revenue 293,342 160,946 52,883 16,420 (11,844) - 511,747
----------- --------- -------- -------------- -------------- -------------- ---------
Adjusted operating
profit 94,773 24,628 12,088 5,103 - (4,726) 131,866
Amortisation of acquired
intangibles (733) (2,249) (218) (4,199) - - (7,399)
Operating profit 94,040 22,379 11,870 904 - (4,726) 124,467
----------- --------- -------- -------------- -------------- -------------- ---------
Net financing expense (273)
Income tax expense (34,879)
---------
Profit for the year 89,315
---------
Fluid
Controls Systems Gears Instruments Elimination Unallocated Group
2011 2011 2011 2011 2011 2011 2011
Revenue from external
customers 277,957 132,624 35,816 1,436 - - 447,833
Inter segment revenue - - 10,777 - (10,777) - -
Total revenue 277,957 132,624 46,593 1,436 (10,777) - 447,833
----------- --------- -------- -------------- -------------- -------------- ---------
Adjusted operating
profit 92,085 17,077 10,336 394 - (3,971) 115,921
Amortisation of acquired
intangibles (890) (2,277) (18) (736) - - (3,921)
Operating profit 91,195 14,800 10,318 (342) - (3,971) 112,000
----------- --------- -------- -------------- -------------- -------------- ---------
Net financing income 550
Income tax expense (32,149)
---------
Profit for the year 80,401
2. Operating segments (continued)
Controls Fluid Gears Instruments Unallocated Group
Systems d
2012 2012 2012 2012 2012 2012
Depreciation 3,708 1,258 251 235 - 5,452
Amortisation:
Other intangibles 733 2,249 218 4,199 - 7,399
Development costs 924 - - - - 924
Non-cash items : equity
settled share-based payments 698 396 271 - 665 2,030
Net financing income - - - - (273) (273)
Acquired as part of business
combinations
* Goodwill - - - 13,952 - 13,952
* Intangible assets - - - 9,668 - 9,668
Capital expenditure 8,656 2,113 1,295 372 - 12,436
---------- --------- ------- ------------- ------------- --------
Controls Fluid Systems Gears Instruments Unallocated Group
2011 2011 2011 2011 2011 2011
Depreciation 3,026 1,205 229 19 - 4,479
Amortisation:
Other intangibles 890 2,277 18 736 - 3,921
Development costs 732 - - - - 732
Non-cash items : equity
settled share-based payments 543 205 129 - 374 1,251
Net financing expense - - - - 550 550
Acquired as part of business
combinations
* Goodwill 1,920 2,106 233 28,289 - 32,548
* Intangible assets 2,595 4,514 435 25,812 - 33,356
Capital expenditure 7,947 1,512 455 88 - 10,002
---------- -------------- ------- ------------- ------------- --------
Balance sheets are reviewed by operating subsidiary and
operating segment balance sheets are not prepared, as such no
further analysis of operating segments assets and liabilities are
presented.
Geographical analysis: Rest of Other Americas Rest of Group
UK Europe USA World
2012 2012 2012 2012 2012 2012
Revenue from external
customers by location
of customer 28,448 156,525 106,027 53,323 167,424 511,747
Non-current assets
- Goodwill 5,009 31,925 39,603 776 3,416 80,729
- Intangible assets 4,496 11,107 24,288 506 346 40,743
- Property, plant and
equipment 13,944 10,529 6,005 622 7,345 38,445
------- -------- -------- --------------- -------- --------
Rest of Other Americas Rest of Group
UK Europe USA World
2011 2011 2011 2011 2011 2011
Revenue from external
customers by location
of customer 25,703 148,513 87,144 38,256 148,217 447,833
Non-current assets
- Goodwill 5,009 17,814 41,447 770 3,419 68,459
- Intangible assets 3,695 2,501 30,513 986 630 38,325
- Property, plant and
equipment 9,027 10,323 6,271 310 6,023 31,954
------- -------- ------- --------------- -------- --------
3. Acquisitions
2012
On 9 November 2012 the Group acquired 100% of the share capital
of Soldo srl. (Soldo) for GBP23,112,000. Soldo designs and
manufactures control accessories for valve automation and is
headquartered near Verona in Northern Italy. The acquired business
will be reported within the Instruments division. In the period
since acquisition Soldo has contributed GBP802,000 to Group revenue
and GBP248,000 to consolidated operating profit before
amortisation. The amortisation charge in the period since
acquisition from the acquired intangible assets was GBP313,000.
If the acquisition had occurred on 1 January 2012 the business
would have contributed GBP6,284,000 to Group revenue and
GBP1,909,000 to Group operating profit. It is not practicable to
disclose profit before tax or profit attributable to equity
shareholders as the Group manages its Treasury function on a Group
basis.
The acquisition had the following effect on the Group's assets
and liabilities.
Provisional Provisional
Book value Adjustments Fair values
Current assets
Inventory 1,044 (320) 724
Trade and other receivables 1,474 (17) 1,457
Cash 1,640 - 1,640
Current liabilities
Trade and other payables (983) (52) (1,035)
Warranty provision - (54) (54)
Corporation tax (486) - (486)
Non-current assets/liabilities
Property, plant and equipment 361 - 361
Intangible assets - 9,668 9,668
Deferred tax 3 (3,118) (3,115)
Total net assets 3,053 6,107 9,160
Goodwill 13,952
-------------
Purchase consideration 23,112
Paid in Cash 22,314
Contingent consideration 798
-------------
23,112
Purchase consideration 22,314
Cash held in subsidiary (1,640)
-------------
Cash outflow on acquisition 20,674
The adjustments shown in the table above represent the alignment
of accounting policies to Rotork Group policies and the fair value
adjustments of the assets and liabilities at the acquisition
date.
The contingent consideration is based on a 2013 profit target
and will be payable in early 2014.
Goodwill has arisen on the acquisition as a result of the value
attributed to staff expertise and the assembled workforce, which
did not meet the recognition criteria for a separate intangible
asset.
The intangible assets identified are customer relationships, the
Soldo brand and the acquired order book.
4. Net financing income
Recognised in the income statement 2012 2011
Interest income 616 746
Expected return on assets in the pension schemes 6,010 6,739
Foreign exchange gains 30 105
______ ______
6,656 7,590
===== =====
Interest expense 162 116
Interest charge on pension scheme liabilities 6,400 6,468
Foreign exchange losses 367 456
______ ______
6,929 7,040
===== =====
Recognised in equity 2012 2011
Effective portion of changes in fair value of
cash flow hedges 1,063 664
Fair value of cash flow hedges transferred to
income statement (664) (457)
Foreign currency translation differences for foreign (3,967) (2,484)
operations ______ ______
(3,568) (2,277)
===== =====
Recognised in:
Hedging reserve 399 207
Translation reserve (3,967) (2,484)
______ ______
(3,568) (2,277)
===== =====
5. Income tax expense
2012 2012 2011 2011
GBP000 GBP000 GBP000 GBP000
Current tax:
UK corporation tax on profits
for the year 9,017 9,737
Adjustment in respect of prior (295) (120)
years ______ ______
8,722 9,617
Overseas tax on profits for the
year 27,892 23,086
Adjustment in respect of prior 480 (210)
years ______ ______
28,372 22,876
______ ______
Total current tax 37,094 32,493
Deferred tax:
Origination and reversal of other
temporary differences (2,531) 57
Adjustment in respect of prior 316 (401)
years ______ ______
Total deferred tax (2,215) (344)
_____ _____
Total tax charge for year 34,879 32,149
===== =====
Effective tax rate (based on
profit before tax) 28.1% 28.6%
Profit before tax 124,194 112,550
Profit before tax multiplied by
standard rate of corporation tax
in the UK of 24.5% (2011: 26.5%) 30,428 29,826
Effects of:
Permanent differences 14 863
Utilisation of overseas tax holidays (6) (1,171)
Different tax rates on overseas
earnings 3,942 3,362
Adjustments to tax charge in respect 501 (731)
of prior years ______ ______
Total tax charge for year 34,879 32,149
===== =====
A tax charge of GBP102,000 (2011: charge GBP168,000) in respect
of share-based payments has been recognised directly in equity in
the year.
The Group continues to expect its effective rate of corporation
tax to be higher than the standard UK rate due to higher rates of
tax in the USA, Canada, France, Germany, Italy, Japan and
India.
There is an unrecognised deferred tax liability for temporary
differences associated with investments in subsidiaries. Rotork plc
controls the dividend policies of its subsidiaries and subsequently
the timing of the reversal of the temporary differences. It is not
practical to quantify the unprovided temporary differences as
acknowledged within paragraph 40 of IAS 12.
6. Goodwill
2012 2011
GBP000 GBP000
Cost
At beginning of year 68,459 35,907
Acquisition through business
combinations 13,952 32,548
Exchange adjustments (1,682) 4
-------- -------
At end of year 80,729 68,459
Provision for impairment
At beginning and end of year - -
-------- -------
Carrying amounts 80,729 68,459
-------- -------
Cash generating units
Goodwill acquired through business combinations have been
allocated to the lowest level of cash generating unit (CGU) and to
the division in which it is reported. Where the acquired entities
growth into new markets is through the Group's existing sales
network the lowest level of CGU is considered to be at the
divisional level.
The carrying value of goodwill is allocated as follows:
2012 2011
GBP000 GBP000
Fluid Systems
Rotork Fluid Systems 7,422 7,624
Rotork Sweden 6,837 6,786
Other cash generating
units 8,611 8,610
------- -------
22,870 23,020
Instruments
Fairchild 27,247 28,679
Soldo 14,196 -
------- -------
41,443 28,679
Controls
Other cash generating
units 8,707 8,967
------- -------
8,707 8,967
Gears
Other cash generating
units 7,709 7,793
------- -------
7,709 7,793
------- -------
Total Group 80,729 68,459
------- -------
Impairment testing
Goodwill is not amortised but is tested annually for impairment.
The Goodwill arising on the acquisition of Soldo has not been
impairment tested due it being acquired in late 2012 and there
being no indication of impairment.
Value in use calculations are used to determine the recoverable
amount of goodwill allocated to each of the CGUs. These
calculations use cash flow projections on actual operating results
and management forecasts.
The key assumptions in the annual impairment review are set out
below:
Management forecasts
The three year plan is a bottom up process which takes place as
part of the annual budget process. The three year plan is prepared
by each reporting entities' management reflecting their view of the
local market, known projects and experience of past performance.
The annual budget and the three year plan are approved by the Board
each year.
Long-term growth rates
In the period after the three year plan growth rates are
forecast at 2% per annum for each CGU (2011: 2%). A rate of 2% is
considered to be prudent considering the significant organic growth
of the business over the last 10 years.
Discount rates
Rotork divisions operate in all the same industry sectors and
markets around the world. Therefore discount rates for each of the
CGUs are considered to be 10.4% (2011: 9.8%) which represents a
reasonable rate for a market participant in this sector.
6. Goodwill (continued)
Sensitivity analysis
Base case forecasts have significant headroom above the carrying
value of each CGU with the exception of Fairchild. Sensitivity
analysis has been undertaken for each CGU to assess the impact of
any reasonable change in assumptions. With the exception of
Fairchild, there is no reasonable change that would cause the
carrying values to exceed the recoverable amount.
With regard to Fairchild, which has only been part of the Group
for 14 months downside sensitivities have been assessed. An
increase in the discount rate to 12.8% would result in the goodwill
being impaired. If the long-term growth rate was 3%, the discount
rate would need to increase to 13.6% for the goodwill to become
impaired. It is anticipated as Fairchild becomes more established
within the Group and leverages the sales network opportunities the
long-term growth rate should comfortably exceed the 2.0% growth
rate assumed in the base case forecast.
7. Intangible assets
Business combinations acquired
intangible assets
-----------------------------------
Research Brands Customer Other Total
& development relationships
costs
Cost
1 January 2011 5,666 4,298 4,018 2,189 16,171
Acquisition through
business combinations - 13,152 18,618 1,586 33,356
Internally developed 1,328 - - - 1,328
Exchange adjustments - 228 (43) 14 199
--------------- -------- ----------------- ------ --------
31 December 2011 6,994 17,678 22,593 3,789 51,054
Acquisition through
business combinations - 4,808 4,706 154 9,668
Internally developed 2,075 - - - 2,075
Exchange adjustments - (532) (577) (101) (1,210)
--------------- -------- ----------------- ------ --------
31 December 2012 9,069 21,954 26,722 3,842 61,587
Amortisation
1 January 2011 3,194 1,042 2,249 1,603 8,088
Charge for the year 732 875 1,973 1,073 4,653
Exchange adjustments - (5) (19) 12 (12)
--------------- -------- ----------------- ------ --------
31 December 2011 3,926 1,912 4,203 2,688 12,729
Charge for the year 924 2,256 4,669 474 8,323
Exchange adjustments - (58) (80) (70) (208)
--------------- -------- ----------------- ------ --------
31 December 2012 4,850 4,110 8,792 3,092 20,844
Net Book Value
31 December 2011 3,068 15,766 18,390 1,101 38,325
--------------- -------- ----------------- ------ --------
31 December 2012 4,219 17,844 17,930 750 40,743
--------------- -------- ----------------- ------ --------
Other acquired intangible assets represent order books and
intellectual property.
The amortisation charge is recognised within administrative
expenses in the income statement.
8. Inventories
2012 2011
Raw materials and consumables 48,279 40,609
Work in progress 11,474 13,209
Finished goods 11,347 9,110
______ ______
71,100 62,928
===== =====
Included in cost of sales was GBP199,710,000 (2011:
GBP175,352,000) in respect of inventories consumed in the year.
9. Trade and other receivables
2012 2011
Non-current assets:
Insurance policy 1,368 1,298
Other 306 258
_____ _____
Other receivables 1,674 1,556
===== =====
Current assets:
Trade receivables 97,382 98,779
Less provision for impairment of receivables (1,560) (2,045)
______ ______
Trade receivables - net 95,822 96,734
===== =====
Corporation tax 1,946 988
______ ______
Current tax 1,946 988
===== =====
Other non-trade receivables 5,196 4,357
Prepayments and accrued income 4,466 4,104
______ ______
Other receivables 9,662 8,461
===== =====
10. Cash and cash equivalents
2012 2011
Bank balances 42,746 33,790
Cash in hand 101 82
Short-term deposits 17,021 14,685
______ ______
Cash and cash equivalents 59,868 48,557
Bank overdraft - (38)
_____ _____
Cash and cash equivalents 59,868 48,519
in the Consolidated Statement ===== =====
of Cash Flows
11. Capital and reserves
Share capital and share premium
5p Ordinary GBP1 Non-redeemable 5p Ordinary GBP1 Non-redeemable
shares preference shares preference
Issued shares Issued shares
and fully and fully
paid up paid up
2012 2012 2011 2011
At 1 January 4,338 40 4,334 40
Preference shares redeemed - - - -
Issued under employee share schemes 2 - 4 -
_____ _____ _____ _____
At 31 December 4,340 40 4,338 40
===== ===== ===== =====
Number of shares (000) 86,808 86,750
===== =====
The ordinary shareholders are entitled to receive dividends as
declared and are entitled to vote at meetings of the Company.
The Group received proceeds of GBP425,000 (2011: GBP450,000) in
respect of the 57,481 (2011: 68,264) ordinary shares issued during
the year: GBP2,000 (2011: GBP4,000) was credited to share capital
and GBP423,000 (2011: GBP446,000) to share premium.
The preference shareholders take priority over the ordinary
shareholders when there is a distribution upon winding up the
Company or on a reduction of equity involving a return of capital.
The holders of preference shares are entitled to vote at a general
meeting of the Company if a preference dividend is in arrears for
six months or the business of the meeting includes the
consideration of a resolution for winding up the Company or the
alteration of the preference shareholders' rights.
Within the retained earnings reserve are own shares held. The
investment in own shares represents 169,511 (2011: 227,575)
ordinary shares of the Company held in trust for the benefit of
directors and employees for future payments under the Share
Incentive Plan and Long Term Incentive Plan. The dividends on these
shares have been waived.
Translation reserve
The translation reserve comprises all foreign exchange
differences arising from the translation of the financial
statements of foreign operations.
Capital redemption reserve
The capital redemption reserve arises when the Company redeems
shares wholly out of distributable profits.
Hedging reserve
The hedging reserve comprises the effective portion of the
cumulative net change in the fair value of cash flow hedging
instruments that are determined to be an effective hedge.
11. Capital and reserves (continued)
Dividends
The following dividends were paid in the year per qualifying
ordinary share:
2012 2012 2011
Payment date
22.75p final dividend (2011:
19.75p) 21 May 19,718 17,097
16.4p interim dividend (2011:
14.5p) 28 September 14,206 12,543
2011 additional interim dividend
of 11.5p paid - 9,948
2011 additional interim dividend - 9,946
of 11.5p paid _____ _____
33,924 49,534
===== =====
After the balance sheet date the following dividends per
qualifying ordinary share were proposed by the directors. The
dividends have not been provided for and there are no corporation
tax consequences.
2012 2011
Final proposed dividend per qualifying ordinary
share
26.6p 23,091
=====
22.75p 19,736
=====
12. Earnings per share
Basic earnings per share
Earnings per share is calculated for both the current and
previous years using the profit attributable to the ordinary
shareholders for the year. The earnings per share calculation is
based on 86.6m shares (2011: 86.5m shares) being the weighted
average number of ordinary shares in issue (net of own ordinary
shares held) for the year.
2012 2011
Net profit attributable to ordinary shareholders 89,315 80,401
===== =====
Weighted average number of ordinary shares
Issued ordinary shares at 1 January 86,523 86,419
Effect of own shares held 55 55
Effect of shares issued under Share option schemes 14 12
/ Sharesave plans _____ _____
Weighted average number of ordinary shares during 86,592 86,486
the year ===== =====
Basic earnings per share 103.1p 93.0p
12. Earnings per share (continued)
Adjusted basic earnings per share
Adjusted basic earnings per share is calculated for both the
current and previous years using the profit attributable to the
ordinary shareholders for the year after adding back the after tax
amortisation charge.
2012 2011
Net profit attributable to ordinary shareholders 89,315 80,401
Amortisation 7,399 3,921
Tax effect on amortisation at effective rate (2,078) (1,120)
_____ _____
Adjusted net profit attributable to ordinary shareholders 94,636 83,202
===== =====
Weighted average number of ordinary shares during 86,592 86,486
the year ===== =====
Adjusted basic earnings per share 109.3p 96.2p
Diluted earnings per share
Diluted earnings per share is based on the profit for the year
attributable to the ordinary shareholders and 87.0m shares (2011:
86.8m shares). The number of shares is equal to the weighted
average number of ordinary shares in issue (net of own ordinary
shares held) adjusted to assume conversion of all potentially
dilutive ordinary shares. The Company has three categories of
potentially dilutive ordinary shares: those share options granted
to employees under the Share option scheme and Sharesave plan where
the exercise price is less than the average market price of the
Company's ordinary shares during the year and contingently issuable
shares awarded under the Long Term Incentive Plan (LTIP).
2012 2011
Net profit attributable to ordinary shareholders 89,315 80,401
===== =====
Weighted average number of ordinary shares (diluted)
Weighted average number of ordinary shares for
the year 86,592 86,486
Effect of share options in issue - 5
Effect of Sharesave options in issue 106 101
Effect of LTIP shares in issue 343 254
_____ _____
Weighted average number of ordinary shares (diluted) 87,041 86,846
during the year ===== =====
Diluted earnings per share 102.6p 92.6p
13. Provisions
Contingent Warranty Total
Consideration Provision
Balance at 1 January 2012 509 5,679 6,188
Exchange differences 15 (130) (115)
Increase as a result of business combinations 798 54 852
Provisions used during the year (200) (1,319) (1,519)
Charged in the year - 1,230 1,230
Balance at 31 December 2012 1,122 5,514 6,636
===== ===== =====
Maturity at 31 December 2012
Non-current 863 1,838 2,701
Current 259 3,676 3,935
_____ _____ _____
1,122 5,514 6,636
===== ===== =====
Maturity at 31 December 2011
Non-current 300 1,918 2,218
Current 209 3,761 3,970
_____ _____ _____
509 5,679 6,188
===== ===== =====
The warranty provision is based on estimates made from
historical warranty data associated with similar products and
services. The provision relates mainly to products sold during the
last 12 months, the typical warranty period is now 18 months.
Contingent consideration relates to amounts outstanding in
respect of the acquisitions of Rotork Servo Controles de Mexico
S.A. de C.V., Prokits Limited and Soldo srl. It is anticipated that
GBP863,000 of the non-current balance will be settled in 2014.
14. Trade and other payables
2012 2011
Trade payables 36,355 38,502
Bills of exchange - 240
______ ______
Trade payables 36,355 38,742
===== =====
Corporation tax 11,143 13,225
______ ______
Current tax 11,143 13,225
===== =====
Other taxes and social security 5,795 5,524
Payments on account 9,108 12,847
Non-trade payables and accrued expenses 20,309 19,989
______ ______
Other payables 35,212 38,360
===== =====
15. Related parties
The Group has a related party relationship with its subsidiaries
and with its directors and key management. Transactions between two
subsidiaries for the sale and purchase of products or the
subsidiary and Parent Company for management charges are priced on
an arms length basis.
Sales to subsidiaries and associates of BAE Systems plc, a
related party by virtue of non-executive director IG King's
directorship of that company, totalled GBP34,000 during the year
(2011: GBP29,000) and GBP15,000 was outstanding at 31 December 2012
(2011: GBPnil).
UBS Investment Bank are a related party by virtue of
non-executive director SA James' directorship of UBS Limited. UBS
Investment Bank provides the Group financial advice and
stockbroking services. The current arrangement with UBS Investment
Limited is that out of pocket expenses will be reimbursed and no
fees will be charged for their regular advisory or broking
services. Expenses of GBP4,000 have been reimbursed in the year and
no balance was outstanding at 31 December 2012.
Key management emoluments
The emoluments of those members of the management team,
including directors, who are responsible for planning, directing
and controlling the activities of the Group were:
2012 2011
Emoluments including social security costs 4,510 3,782
Post employment benefits 457 392
Share-based payments 1,418 844
_____ _____
6,385 5,018
===== =====
16. Post balance sheet events
On 17 January 2013 the Group acquired the entire share capital
of the operating companies of the Schischek group for GBP34.3m. The
consideration was paid in cash and the Group will be assuming
Schischek's net debt of GBP1.1m. The operating profit of the
acquired group in 2012 is expected to be GBP4.5m.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR SSUFALFDSESD
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